Firmer crude oil movements, FBM KLCI on a rally

-A +A

United States markets ended slightly higher on Wednesday after energy shares rose following firmer crude oil movements to a 2015 high. Total industrial output fell more than projected in March as a strong US dollar and cheaper crude oil hurt American manufacturing. With a firmer case for continued US economic stimulus, the SP500 Index gained 10.79 points to 2,106.63 points while the Dow rose 75.91 points to end at 18,112.61.

In Malaysia, the FBM KLCI moved in a narrow range of 12.85 points for the week with higher volumes of 2.02 billion to 2.70 billion shares traded. The index closed at 1,847.94 yesterday, up 7.81 points from the previous day as blue-chip stocks like AMMB Holdings Bhd, Genting Bhd, IOI Corp Bhd, Public Bank Bhd and Tenaga Nasional Bhd caused the index to rise on some late afternoon buying activities. The ringgit was firmer against the US dollar at 3.6575 as Brent crude oil surged to US$60.55 (RM221.8) per barrel.

The index rose on a rally from the 801.27 low (Oct 2008) to its 1,896.23 all-time high (July 2014) and it represents an extended Elliott Wave “Flat” rebound in a “Pseudo-Bull” rise completed. The next few months’ index price movements since July 2014 comprised of key swings of 1,837.28 (low), 1,879.62 (high), 1,766.22 (low), 1,858.09 (high), 1,671.82 (low), 1,810.21 (high), 1,706.18 (low), 1,831.41 (high) and 1,774.30 (low).

All the index’s daily signals are mixed at the moment, with its CCI, DMI, Stochastic and Oscillator indicators showing upbeat readings. However, the MACD has displayed some negative signals. As such, the index’s obvious support levels are seen at the 1,795, 1,836 and 1,847 levels, while the resistance areas of 1,856, 1,879 and 1,896 will cap the index’s rise.

The FBM KLCI’s 18- and 40-day simple moving averages (SMA) depict a good uptrend for its daily chart. The recent price bars of the index are now also above the 50- and 200-day SMA and is also positive on that front. With this, the index has taken on a firmly positive tone recently.

Due to the much improved tone for the FBM KLCI, we are recommending a chart “buy” on E A Technique (M) Sdn Bhd. Looking at the most recent fourth quarter financial year 2014  (4QFY14) results announcement, the group recorded an increase in revenue of RM34.6 million to RM155.7 million from RM121.1 million in 4QFY13. The higher revenue was attributed to full-year operations for contracts secured in 2013. Despite the higher revenue number recorded, profit before tax (PBT) fell to RM19.8 million for 2014 (in FY14E) from RM59.4 million in FY13E. The weaker PBT number was despite a gain in disposal of an associate in FY13E amounting to RM37.5 million and share of profits from an associate amounting to RM2.9 million.

Further to the announcement, the board of E A Technique remains optimistic that the company’s profitability would improve. This is on the back of it having recently secured a new contract in February 2015 for the engineering, procurement, construction, installation and commissioning  of a floating, storage and offloading facility for the full field development project in the North Malay Basin, valued at US$191.8 million for 20 months.

A check of the Bloomberg consensus reveals that no research house covers the stock. E A Technique currently trades at a historical price-earnings ratio of 19.6 times. Its price-to-book value of 1.54 times indicates that its share price is trading at a premium to its book value.

The chart trend on the daily, weekly and monthly time frame is very firmly up. Its share price made a good surge since its major daily Wave-2 low of RM0.525 on March 5, 2014. Since that RM0.525 low, E A Technique surged to its April 2015 recent all-time high of RM0.74.

As prices broke above its recent key critical resistance levels of RM0.63 and RM0.705, look to buy the stock on any dips to its support areas as the moving averages depict very firm short- to long-term uptrends for this stock.

The daily indicators (like the CCI, DMI, MACD, Stochastic and Oscillator) have issued buy signals and now depict very firm indications of E A Technique’s eventual surge towards much higher levels. It would attract firm buying activities at the support levels of RM0.63, RM0.705 and RM0.72. We expect E A Technique to witness some profit-taking at its resistance area and all-time high of RM0.74. Its upside targets are located at RM0.83, RM1.02 and RM1.17.

Lee Cheng Hooi is the regional chartist at Maybank Kim Eng. The views expressed in the article are the opinions of the writer and should not be construed as investment advice. Please exercise your own judgment or seek professional advice for your investment decisions. Technical report appears every Wednesday and Friday.


This article first appeared in The Edge Financial Daily, on April 17, 2015.